Investment disputes have been growing in complexity and number in recent years, according to a study by Joachim Karl in Columbia FDI Perspectives, which was published by the Vale Columbia Centre on Sustainable International Investment. In 2011, there were 450 publicly known cases connected with investor-state dispute settlement (ISDS), up from 67 in 2001.
ISDS, a provision in international investment agreements (IIAs) that gives foreign investors the right to seek arbitration against host countries, has gained popularity in recent years following the proliferation of IIAs. The main body specialising in FDI arbitration is the International Centre for Settlement of Investment Disputes (ICSID), an entity within the World Bank system formed in 1966. In 2012, ICSID registered 50 cases, twice as many as in 2009 and nearly four times more than in 2002.
The dispute cases ranged from those concerned with environmental policies to those dealing with regulations connected to economic crises. Among the FDI-related cases were those concerned with indirect expropriation and the scope of fair treatment.
The report showed that investment disputes were largely limited to developing economies, though, there was a global increase in ISDS cases. In 2011, 18 developed countries faced FDI-related arbitration, compared to 55 developing countries and 16 transition economies. By comparison, the figures for 2009 were 17, 15 and 49, respectively.
Mr Karl is one of a growing number of international law specialists and governments that argue that, despite the foreign investment dispute resolution mechanism being in place, it requires a string of policy reform in order to remain relevant. Mr Karl said that countries signing IIAs should avoid a “one-size-fits -all” approach. He said that more attention should be given to the state of judicial systems of IIAs signatories. The scope of individual treaty clauses also needs to be more precise in order to avoid vague and generic descriptions that mire the language of international law.
Furthermore, Mr Karl suggests that bilateral treaties should include a broader appeals mechanism: currently, defendants before ICSID have the right to apply for annulment before the final award is announced. Overall, a higher level of legal predictability, stability and legitimacy of ISDS is needed.